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TMI Blog2018 (12) TMI 1609X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee against the order dated 9/12/2016 of ITO, Ward-2(1)(1) Bengaluru, in respect of an order passed u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (Act) relating to assessment year 2012-13 respectively. 2. The Assessee is a company engaged in the business of providing contract Software Development Services (SWD Services) and providing Information Technology Enabled Services (ITES) to its holding company Evolving Systems USA as a captive service provider. The transaction of rendering software development services to holding company was a transaction with an Associated Enterprise (AE) and was therefore an international transaction. As per the provisions of Sec.92 of the Act, income from international transaction has to be computed having regard to Arm s Length Price (ALP). It is not in dispute between the Assessee and the revenue that the Transaction Net Margin Method (TNMM) was the Most Appropriate Method (MAM) for determination of ALP and that the profit level indicator to be adopted for comparison of the Assessee s profit with that of comparable companies was Operating Profit/Total Cost (OP/TC). The OP/TC of the Assessee was 17%. The Transfer Pricing Officer (TPO) to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in his drat assessment order as addition on account of shortfall being adjustment u/s.92CA of the Act. 5. The Assessee filed objections to the draft assessment order by the AO before the Disputes Resolution Panel (DRP). The DRP in its directions held that ICRA Techno Analytics Ltd. and Datamatics Global Services Ltd. are not comparable with the Assessee and were liable to be excluded from the list of comparable companies as they agreed with the Assessee that these two companies are not functionally comparable to the Assessee, (ii) So also the DRP held that the following four companies are liable to be excluded from list of comparable companies viz., Geneys International Corporation Limited, Infosys Ltd., Sasken Communication Technologies Ltd., and Spry Resources India Private Limited. (iii) the DRP however felt that if 6 companies are excluded the set of comparables would not be broad and therefore decided to retain all the 10 comparables chosen by the TPO. (iii) The DRP however directed TPO to recompute the margins of the Assessee and the comparables after treating foreign exchange fluctuations as operating income or loss as the case may be. 6. Pursuant to the directions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO had chosen some comparable companies which were also chosen by the TPO in the case of the Assessee for the purpose of comparability. In the aforesaid decision the Tribunal held on the comparability of the 3 companies which the Assessee seeks to exclude as follows: (a) Infosys Ltd., was excluded from the list of comparable companies by following the decisioin of the Hon ble Delhi High Court in the case of CIT Vs. Agnity India Technologies (2013) 36 taxmann.com 289 (Delhi). The discussion is contained in paragraphs 4.5 to 4.7 of the Tribunal s order. The Tribunal accepted that Infosys Ltd. is a giant risk taking company and engaged in development and sale of software products and also owns intangible assets and therefore not comparable with a software development service provider such as the Assessee in that case. (b) Larsen Tourbro Infotech Ltd., was excluded from the list of comparable companies by relying on the decision of the Delhi Bench of ITAT in the case of Saxo India (P) Ltd. Vs. ACIT (2016) 67 taxmann.com 155 (Del- Tri). The discussion is contained in paragraphs 4.8 to 4.10 of the Tribunal s order. The Tribunal held that L T Infotech Ltd., was a software produ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd geospatial services and operates a few development centres in India. The company is predominantly into software development services. The intangibles in the possession f the company are only the GIS database which is only depreciation. It does not add significant value to the company. 12. The DRP upheld the action of the TPO. The learned counsel for the Assessee submitted that the DRP has completely proceeded on wrong facts which does not either emanate from the order of the TPO or the submissions of the Assessee. He reiterated submissions made before the TPO and DRP. The learned DR relied on the order of the DRP/TPO. 13. We have given a careful consideration to the rival submissions. It is clear from the material brought to the notice of the TPO by the Assessee that this company renders mapping and geospatial services. In rendering such services it develops software. But that does not mean that this company is in the business of software development. The business profile of this company as per the annual report does not show that this company is into software development service. The only line of business that this company carries on is rendering GIS based services and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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